Daniel Eran Dilger in San Francisco
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Reality Check: CDMA/Verizon iPhone is nothing like Mac OS X for Intel

evolution of mobile technologies

Daniel Eran Dilger

It’s become fashionable among Mac writers to refer to a secret CDMA iPhone that’s been under development all this time in parallel to the GSM/UMTS version Apple actually sells, and to compare this to the Intel build Apple secretly maintained for Mac OS X. It’s not really accurate though.
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It might seem surprising that Apple hasn’t already released a CDMA/EVDO phone that could work on Sprint and Verizon Wireless in the US, but it shouldn’t be. By keeping the iPhone GSM/UMTS (which, for clarity’s sake, I’ll subsequently refer to as the “3GPP” iPhone), Apple can focus its testing on one mobile technology platform that it can sell globally.

While Sprint and Verizon make up a big chunk of the US market, they are almost irrelevant when looking at the global addressable market Apple has been able to tap with the last four generations of its 3GPP iPhone. In part that’s because many of the customers Apple could possibly pick up in the US can already be (and have been) attracted to AT&T. While today’s CDMA/EVDO networks offer availability advantages over AT&T’s newer and faster, but often more difficult to find 3G network, that competitive advantage is eroding as AT&T fleshes out its 3G/3.5G network.

Apple’s real growth is not going to come from picking up the minority of Verizon users in the US who can’t switch but do want the iPhone; it’s from global expansion. The CDMA/EVDO Qualcomm mobile network technology that Sprint and Verizon use in the US is growing increasingly rare worldwide. Canadian CDMA providers have set up a 3GPP 3G overlay that enables them to support the iPhone. Australian providers have switched wholesale.

Even in the US, Sprint is banking its future on WiMAX (which it brands as “4G,” even though it is not really “4G” at all in the terms defined by standards bodies; 4G means IP-based service beginning at 100 Mbps, while Sprint’s WiMAX offers 3-6Mbps) while Verizon is building out LTE, a 3GPP standard (which is also known as 4G, but is also a stepping stone toward a future 4G implementation). CDMA/EVDO is literally dying worldwide.

If Apple had a ready-to-sell CDMA/EVDO iPhone it had been maintaining in parallel development to the 3GPP iPhone it actually sells, it would be completely moronic for the company to sit on that for going on years, waiting to release it until CDMA/EVDO slipped from being the best US 3G mobile networks in terms of reach, and instead fell into history as a legacy network.

It is possible that Apple could deliver a CDMA/LTE hybrid iPhone or even a global CDMA/UMTS/LTE device that could conceivably work on nearly any carrier’s network. However, that product would not need any special history of underground development perpetuating support for CDMA within the bowls of Apple, as this myth suggests.

Smartphones are network agnostic by design

Apple doesn’t need (and certainly hasn’t needed) to secretly maintain a CDMA/EVDO doppelganger to the 3GPP iPhone in order to “maintain readiness” in a sense similar to its maintaining builds of Mac OS X for Intel chips. Adding support for another mobile technology is not really an intrinsic change to the design of the iPhone at all.

That’s because iPhone, like any other smartphone, is really a computer attached to a mobile phone radio modem via a serial link. The iOS-run part of the iPhone that is essentially a mobile Mac has nearly nothing to do with the baseband end, which functions as a self-contained radio module running its own firmware (not anything really related to Apple’s iOS, although the baseband firmware is obviously distributed with iOS).

Similarly, Android phones don’t have an “Android baseband” either; just like Palm’s webOS and Microsoft’s Windows Mobile and Motorola’s Linux phones, they all have a computer end running the user interface software (typically driven by an ARM application processor like the Snapdragon), and a proprietary, embedded system operating the baseband chip. There is no “open” or GPLed baseband firmware on any mobile phone, because that end of the phone is tightly regulated by governments along with most of the other radio spectrum.

Neither Apple nor Google nor Palm nor Microsoft nor the GNU community directly manage the functions of the baseband processor using their forward facing operating systems. Instead, baseband chip vendors deliver a fully functional chip that supports whatever networks it’s designed to support: CDMA/EVDO, GSM, UMTS, HSPA, LTE, WiMAX, iDEN or whatever. The computer end of the phone simply sends modem commands over the serial link to it, just like an old fashioned PC connected to an old fashioned modem on the analog phone network. The PC didn’t really care what protocol the modem used, and the phone modem didn’t care if it was connected to a Mac or a Windows PC.

Mobile Technology Families and Generations

Different types of networks (and different generations of technology within a family of networks) require expertise in handling their different frequencies and radio modulation types, antenna designs, and optimizations to work on carriers’ networks, so it does require more than just throwing a CDMA chip in the iPhone to get a CDMA iPhone. However, Apple has already been accommodating new network technologies at a regular clip.

While the iPhone has appeared to remain “GSM” through its four generations, that’s just shorthand for noting that Apple has remained attached to AT&T and the largest global market for mobile devices: the 3GPP family of standards. In reality, the original iPhone was GSM, a 2G standard. The iPhone 3G added support for 3G UMTS, which developed out of the same standards bodies that worked on GSM, although it uses entirely different technology.

UMTS uses a WCDMA “air interface,” a modern (but incompatible) cousin of the Qualcomm CDMA/EVDO technology portfolio, rather than the TDMA air interface technology used by GSM. This difference is why iPhones interrupts radio gear with a chirping static when running on GSM/EDGE (which uses TDMA), but don’t when using 3G UMTS (thanks to the lack of interference issues with WCDMA).

Over the last year, the iPhone 3GS added support for 7.2 Mbps HSDPA (High-Speed Downlink Packet Access), which is part of Release 5 of the 3GPP portfolio, and iPhone 4 introduced support for 5.8 Mbps HSUPA (High-Speed Upload Packet Access), part of 3GPP Release 6.

Ahead are 3GPP Release 7 (known as HSPA+, with even faster speeds to 56Mbps up, 22 Mbps down) and Release 8 (called Long Term Evolution or LTE, which is often referred to as 4G but actually described as “3.9G” by the 3GPP.). LTE Advanced, part of Release 10, will qualify as true 4G with 100Mbps service.

In order to support a new mobile network technology (as it has already done across generations of 3GPP standards), Apple needs the appropriate chipset and the expertise and testing required to create a device that works within the carrier network’s specifications. While all of its radio-related job listings specify requisite experience with GSM/UMTS and CDMA technologies, the company hasn’t needed to maintain a skunkworks project around a CDMA iPhone for three years.

evolution of mobile technologies

CDMA iPhone really nothing like Intel Mac OS X

It’s not really difficult for Apple to acquire the technology and expertise to build a CDMA phone, particularly because the baseband is so completely isolated from the computer end of the iPhone, the part where Apple adds its real value. There’s no problem with Apple needing to integrate CDMA support into its own iOS software in such a way that would affect its App Store developers, for example.

This makes a CDMA iPhone very different than the Intel-readiness work Apple secretly maintained for over half a decade within its Mac OS X development program. Unlike the iPhone, the PowerPC/Intel issue was core to Apple’s desktop operating system and all apps that ran on it. Apple had to maintain an Intel build (which was the primary CPU platform of NeXTSTEP when Apple acquired it from NeXT in 1997) in order to keep open the possibility of quickly transitioning back to Intel CPUs in the future, and being able to move all its developers along with it.

In contrast, Microsoft abandoned its own efforts to maintain its Windows NT operating system on different CPU platforms in 2000, resulting in Windows 2000/XP/Vista/7 and third party Windows software subsequently being closely tied to Intel x86 CPUs in a way that makes it very difficult for Microsoft to ever transition to another CPU architecture (and realistically expect that users and developers could survive the transition).

Consider Itanium, Intel’s other PC CPU design; while Microsoft created an edition for it under Windows XP/Vista, users could not effortlessly migrate without dealing with all sorts of driver and software dependencies, and developers needed to make major changes to their code to support the chip, including gutting all sorts of x86 dependencies from their code. Even the move from 32 bit x86 to 64-bit x64 has been a problematic jump for Windows and its users, while Apple’s Mac users don’t even need to know which CPU they’re using.

Does Apple want a CDMA iPhone?

Pretty clearly, Apple hasn’t wanted to deliver a CDMA iPhone. If it did, it certainly could have shipped one. Even the relatively tiny and poor Palm managed to ship both CDMA and UMTS versions of its Palm Pre within a year, and it was on its last legs while doing it. Apple does not face a technical issue in delivering a CDMA phone.

Apple’s reasons for not delivering a CDMA phone relate to a clear cost/benefit evaluation. On the cost side, creating a CDMA iPhone would incur some design and testing expense. The opportunity cost of not putting those efforts into improving the mainstream iPhone are even greater, however. Imagine Apple releasing a poorly performing CDMA phone, and what dramatically bad press that would garner, given the current brouhaha over the iPhone 4′s reception, despite it being ranked as the best iPhone yet by all reviewers to have performed any technical analysis.

Another cost would be the lack of leverage Apple would have with AT&T. From the cheap 3G pricing plans of the iPad, to the pull Apple exercises in other areas, from the App Store to being able to support the iPhone as it wants, Apple has irrefutably done well with AT&T as a partner, regardless of all the grumbling of the pundits in their histrionic blogs who think that Apple’s weakest link is also a terrible bind.

Now the benefits: Apple would gain a potential audience of Sprint and Verizon’s 140 million US customers. Of course, a lot of those customers aren’t interested in the iPhone, or even a smartphone. AT&T has the most smartphone users of any US carrier. Secondly, a large number of the users who would line up to buy a Verizon iPhone are currently AT&T customers. That’s not a net add for Apple, it’s just a net loss for AT&T.

The value of a CDMA iPhone

Verizon and Sprint are not indicating any particularly readiness to dump their own layers of ringtone, media sales and software rentals to grab the iPhone, or any other phone. That indicates it will be tough for Apple to work with either of them to deliver a CDMA iPhone, just to reach their smartphone users. Consider that Verizon’s flagship CDMA smartphone of Q1 2010, the Motorola Droid/Milestone, sold 2.3 million units globally, while Apple sold 8.8 million iPhones globally during the same period.

Now Sprint: its premiere smartphone was the Palm Pre, which sold miserably. It now has the HTC EVO, which Sprint initially said wildly outsold the Pre, before admitting that no, it had lied and the EVO only matched the Pre in orders, and that both were selling poorly (Sprint didn’t use the word poorly).

If Apple released a CDMA iPhone, it would now be competing against Droid Incredible, Droid X, and Droid 2 on Verizon’s network and EVO on Sprint’s. Even if it could wipe out sales of Android phones entirely, it would only end up with a few million more sales, unless there is some huge invisible flood of Verizon buyers who desperately want the iPhone but wouldn’t even consider an Android phone. There’s a fair amount of work involved in creating a second iPhone model just to service a few million users in the US, and that potential is greatly outweighed by Apple continuing to focus on selling iPhone 4 to vast global markets that make Sprint and Verizon’s 140 million users look like nothing.

The top 15 global mobile carriers handle around 3,000 million subscribers, and they’re all GSM/UMTS carriers. Below Verizon and AT&T, there’s another 800 million subscribers handled by the next 15 largest mobile carriers, and again, they’re all GSM/UMTS carriers too. So should Apple aim at selling the iPhone to 3,800 million potential subscribers worldwide, or should it focus its attention on making a single new generation of CDMA iPhone to target some of the 140 million subscribers in the US with a phone that will be obsolete in two years?

The only real reasons Apple has to target CDMA users in the US is the potential saturation of AT&T’s network and the potential risk of allowing Android a market to grow in without competition. Outside the US, Android is doing poorly in any region where Apple also sells the iPhone. Those two factors give Apple some valid reason to consider building a short term CDMA iPhone to sell in the US before LTE becomes widespread in two years or so (and the American GSM/CDMA barrier evaporates).

It would likely be far less work to introduce an iPhone capable of using T-Mobile’s 3G network, an option that would give Apple a second US carrier and help distribute its load somewhat. T-Mobile also offers cheaper service options, potentially enabling it to cater to a different demographic than AT&T’s subscriber base.

If Apple can add CDMA fallback to its next iPhone, it could make sense to deliver a hybrid-network model it can sell anywhere, including Verizon and Sprint. However, the idea that Apple had, has, and will continue to secretly nurture a functional CDMA iPhone but not sell it makes the least sense at all. There’s no need to do this, no value in doing it, and there’s huge opportunity costs in incurring such a significant expense without actually profiting from it.

From that perspective, the idea that Apple will begin selling a Verizon iPhone at the end of the year or in early 2011 also looks doubtful, perhaps wholly contingent upon the possibility of adding CDMA support to iPhone 4 via a hybrid baseband upgrade.

55 comments

1 Berend Schotanus { 07.02.10 at 4:37 am }

Good analysis!

I think the major goal for Apple would be omnipresent network access. The big obstacle te achieve that goal is the payment model. Data connectivity is an abstract service. Customers and suppliers have to trust each other that what they pay for and what they get is reasonable. I can not really imagine what a good payment model would look like but there are clever minds working in that right now.

I do know what a bad model looks like: charging customers for voice minutes, ringtones, SMS’s and other “services”. There is clearly a big conflict of interest here between Apple and “traditional” phone carriers.

2 gary B { 07.02.10 at 4:48 am }

Good read.
I might be reading your chart incorrectly but are the 3G up and down figures for iPhone 4 reversed?

3 rallred { 07.02.10 at 6:01 am }

I think your analysis is spot on…but count me as one of those crazy few who won’t be getting an iPhone until it’s available in the US on either Verizon or Sprint.

4 gus2000 { 07.02.10 at 7:03 am }

I think the current VeriPhone rumors are based on insider information about the next phone using some kind of 4G radio technology that is Verizon-compatible, probably LTE. But as Daniel points out, the few extra customers have less value to Apple than the leverage it gets by keeping AT&T exclusive.

A 4G iPhone, however, would make the ‘leet Jailbreak/Unlock community excited.

I’ve used Verizon before, and I got terrific reception(well, in most places) and great customer service. But they lock you down and nickel-and-dime you to death. V-Cast? You want me to pay a monthly fee to watch video clips? Force me to use your metered transfers over the air by locking out USB-direct transfer? They’ve had quite a few customer-service mishaps too: users on “unlimited” plans getting booted for using too much bandwidth, for instance. They even tried to extort a $350 termination fee from the widow of a dead customer…who died in Afghanistan.

Getting iPhone on Verizon just really isn’t that big of a prize.

5 adobephile { 07.02.10 at 7:38 am }

Apple is obviously firmly on its own self-set course. There are most likely very good reasons for continuing its exclusive arrangements with AT&T, known best to both Apple and AT&T.

The “volume” of “public opinion” is only apparent in this case due to the relative ease of the posting of comments on blogs and articles, most of which are done with anonymity.

I for one am a happy AT&T customer who has enjoyed good service at reasonable prices.

I also look forward to any actual situations being resolved in due course which will enhance both companies’ respective performances.

It seems to me that both companies are enjoying strong demand for their products, and that their efforts to enhance their respective capabilities to deliver their products and services will result in the resolution of any actual situations.

6 stormj { 07.02.10 at 7:53 am }

If it’s so trivial for them to make a CDMA model, then why wouldn’t they? Actually, it is not as trivial as you make it sound to make it work just plugging in a baseband. But, that doesn’t mean you’re wrong that they haven’t made one. It just means nobody knows.

The fact of the matter is, when Verizon goes to LTE, there will be iPhones on Verizon, either through jailbreak or legitimately.

Where I live, AT&T reception is very spotty; my wife’s Verizon Blackberry is basically flawless. I don’t care that AT&T covers 97% of the population. I’m either not in that area or in an area they are lying about.

I also think you are underestimating the benefits of being on the #1 US carrier without people having to switch.

Having said all of that, I don’t believe for one minute that Apple will release an iPhone before LTE that works on Verizon.

7 John E { 07.02.10 at 11:03 am }

the article makes many good points. but … leaves out that outside the US Apple has multiple telco deals in many countries, so certainly sees some advantage to that approach.

and the article’s statement that a cost/benefit analysis favors Apple NOT selling a US CDMA phone makes no sense. show me the numbers. as noted elsewhere, the cost of developing such a iPhone variant isn’t that much. compared to the benefit of at least 5 million additional sales over 2 years until LTE deployment replaces CDMA – and probably a lot more sales than that.

the article did note the advantage of checking Android’s “protected” growth via Verizon, which also is a factor.

so i do expect to see a Verizon iPhone soon. only reason why not would be if Verizon refuses to accept Apple’s terms.

8 Mark Hernandez { 07.02.10 at 11:32 am }

Excellent analysis, as usual Daniel.

Although you mentioned that working on the CDMA network pretty much involves only changing the radio chip inside and the rest of the phone software remains the same, you didn’t mention what “software” changes would be required on the Verizon and Sprint’s side which Apple WOULD have to help with, such as supporting Visual Voicemail, FaceTime, easy account activation, etc.

Also, I noticed pundits commenting on Apple’s recent job postings for antenna engineers and the flawed thinking has something to do with iPhone 4, when in fact iPhone 4 has been done and shipped inside Apple for a while now, and they’re working on iPhone 5 and all the various upcoming technologies you’ve made mention of.

The world and marketplace is SO complex and even tech people have inadequate critical thinking skills to deal with it, or they forget that you really DO have to study and research ANY topic to really understand it before you speak about it. You are one of the few people who consistently offers up that deeply researched and studied analysis more than anyone I have read online. Thanks for that!

Mark Hernandez
Information Workshop

9 shadash { 07.02.10 at 12:43 pm }

Dan wrote:
“While Sprint and Verizon make up a big chunk of the US market, they are almost irrelevant when looking at the global addressable market Apple has been able to tap with the last four generations of its 3GPP iPhone.”

It seems disingenuous to compare claim on the one hand that Apple doesn’t need to put their full efforts to addressing all potential customers in the US and then criticize Nokia for basically ignoring the US market.

[disingenuous: you keep using that word. I do not think it means what you think it means. Also, why are you stuffing words about Nokia "ignoring the US market" in my mouth? First off, they're not ignoring, they're failing while trying. - Dan]

Dan wrote:
“While today’s CDMA/EVDO networks offer availability advantages over AT&T’s newer and faster, but often more difficult to find 3G network, that competitive advantage is eroding as AT&T fleshes out its 3G/3.5G network.”

This is not the case, and the launch of the iPhone 4 proves what a disaster AT&T has been for Apple. The caveat to these tests that show that AT&T provides faster download/upload speeds is always: if/when you can get a signal. Just today Apple has been forced to essentially admit that they artificially increased the number of bars shown on the iPhone to make it look like AT&T was a decent network. It will be interesting to see when the new software update comes out what the “real” AT&T network looks like.

[Signal bars have nothing to do with the faster air interface technology AT&T is using. There is no controversy surrounding the fact that Verizon's network has more coverage (it was started a couple years ahead) but that AT&T's network is faster. In many places it is significantly faster already, and has the capability to rapidly improve as AT&T upgrades its backhaul lines. - Dan ]

Dan wrote:
“Apple’s real growth is not going to come from picking up the minority of Verizon users in the US who can’t switch but do want the iPhone; it’s from global expansion.”

Even if it was a minority, lets say 5% of Verizon customers would switch. That would translate into 4.5 million added phones a year, effectively increasing total sales by 10%. Analysts have claimed the actual number could be as high as 12 million, more than 25% of current worldwide sales.

[What is your 5% based on? Why not just say "lets say 5 million people switch!!" and not pull out a percentage, as if that makes your guesswork more credible than regular guess work? Verizon doesn't sell that many smartphones now. Suggesting that Android sales will completely vanish into iPhone sales 100% is a little excessive even in the guesswork arena.]

Dan wrote:
“Imagine Apple releasing a poorly performing CDMA phone, and what dramatically bad press that would garner”

I can’t imagine Apple releasing a poorly performing phone to be honest. Imagine if Apple released a stellar CDMA phone, and what dramatically ecstatic press that would garner.

Dan wrote:
“Consider that Verizon’s flagship CDMA smartphone of Q1 2010, the Motorola Droid/Milestone, sold 2.3 million units globally, while Apple sold 8.8 million iPhones globally during the same period.”

Consider that Motorola is one player in the total Android ecosystem. Consider that in the 1st quarter of this year Android phones either outsold or more likely approached total iPhone sales in the US. It is really disingenuous for you to quote the sales of one Android product instead of total sales.

[No it's not. Verizon pushes one phone at a time. You can't compare the potential of Vz selling the iPhone to every campaign by every US carrier of every Android phone. That's ridiculous.]

Dan wrote:
“The top 15 global mobile carriers handle around 3,000 million subscribers, and they’re all GSM/UMTS carriers. Below Verizon and AT&T, there’s another 800 million subscribers handled by the next 15 largest mobile carriers, and again, they’re all GSM/UMTS carriers too. So should Apple aim at selling the iPhone to 3,800 potential subscribers worldwide, or should it focus its attention on making a single new generation of CDMA iPhone to target some of the 140 subscribers in the US with a phone that will be obsolete in two years?”

So you’re comparing affluent customers in the United States to every potential Third World subscriber? Are total numbers really the whole picture? If you’re going to take this line, why should Apple release a phone in the US at all? After all, there are only 300 million people in the US, compared to over 6 billion potential customers in the world.

[The point is that Apple already offers an iPhone to the 300 million people in the US. There is a limited return involved with adding new carriers. Reaching new potential subscribers who can't yet buy it at all is far more likely to result in sales than adding a second source in the US. Additionally, you need to pull your head out of the sand. There's far more affluent people in a lot of countries compared to the US. It's not 1949. Ever traveled? Many cities in China make much of the US look like a 3rd world country. ]

Dan wrote:
“If Apple released a CDMA iPhone, it would now be competing against Droid Incredible, Droid X, and Droid 2 on Verizon’s network and EVO on Sprint’s. Even if it could wipe out sales of Android phones entirely, it would only end up with a few million more sales, unless there is some huge invisible flood of Verizon buyers who desperately want the iPhone but wouldn’t even consider an Android phone.”

Yes – this is exactly what needs to happen. Apple needs to compete directly with Android in the US. Why has AT&T just recently released an Android phone? Why is Android essentially nonexistent outside of the US? Even if Android wasn’t wiped out entirely, the growth and momentum of the platform would be stopped dead. There is a flood of Verizon buyers waiting for the iPhone, and buying the next best thing on a decent network. Apple is literally leaving gobs of money on the table right now.

[AT&T sells Android phones that are cheaper and/or different than the iPhone. Phone makers are typically using Android to sell low end phones. We hear about the few phones from HTC that are $700, but thats the same stuff HTC was failing to sell in quantity with Windows Mobile on it over the last few years. The vast majority of Vz's phones are cheap feature phones, with mostly low end app phones filling the iPhone void. Which is why AT&T handles more smartphones and mobile data than everyone else in the US together. Thinking something "must be the case" is not the same as being armed with facts. ]

Dan wrote:
“The only real reasons Apple has to target CDMA users in the US is the potential saturation of AT&T’s network and the potential risk of allowing Android a market to grow in without competition.”

AT&T’s network is saturated. You posted a Youtube link a few months back where you showed how to put an antenna on top of your house to try to improve reception. Evidence abounds that AT&T is overwhelmed right now. And by ceding Verizon, Spring, and T-Mobile to Android, Apple has let Android grow into a huge threat. Android is now not just moving against the iPhone, but will move against the iPad and even iTunes. How different would things have been if Apple had released an iPhone more widely in 2008 or 2009.

[AT&T has two main problems: it's upgrading from GSM/EDGE to 3G (years after Verizon), which resulted in weaker coverage as 3G needs more towers, and it needs to modernize its backhaul. If you're not aware of what the issues are, you can only make blanket statements about "how AT&T is overwhelmed" with the assumption that nothing can be done about it. That's not the case. New use of 850MHz spectrum and fast backhauls will make a phenomenal difference in AT&T's capacity.

Dumping those 12 million iPhone users on Verizon's EVDO (and fleeting bits of LTE) that "analysts" expect to be possible would simply wipe out Verizon's network too. ]

Dan wrote:
“It would likely be far less work to introduce an iPhone capable of using T-Mobile’s 3G network, an option that would give Apple a second US carrier and help distribute its load somewhat. T-Mobile also offers cheaper service options, potentially enabling it to cater to a different demographic than AT&T’s subscriber base.”

First, I have never known Apple to do something because it is “far less work.” Second, T-Mobile’s coverage is even worse than AT&T. There is a reason Apple approached Verizon first in 2006/2007.

[Do we really know that Apple approached Verizon first? We do know that AT&T didn't have much of a 3G network in 2006. Also, it is universal that everyone does what is "far less work" whenever possible.

Apple just added a new UMTS frequency band to iPhone 4 that supports better coverage in Asia (Japan and New Zealand?). It was "far less work" than adding CDMA or TD-SCDMA or LTE, which is why it got added and other technologies didn't. ]

Finally, after a lot of thought and some regret, I moved from being an iPhone owner for 3 years to the Droid Incredible a few weeks ago. I love it. The phone itself is not nearly as good as the iPhone and I miss a lot about the iPhone. But I can use the Droid everywhere without losing a signal or dropping a call. I am extremely happy not to be saddled with AT&T for 2 more years.

[I seriously considered this, but bought the iPhone 4 because I found Android to be maddening, and I'd rather miss a call than miss being happy - Dan]

10 Maniac { 07.02.10 at 1:34 pm }

Great article Dan, as always. I think Apple must be holding out until both AT&T and Verizon are both using IP-based 4G on a large scale. Then there will be no need to either create two different iPhones or to add CDMA/EVDO to the current 3GPP iPhone.

Neither of those options are very appealing. Apple probably wouldn’t want the complexity of managing two separate iPhones with different carriers. (And, as you say, any leverage Apple has over AT&T would be lost.) And adding hybrid 3GPP/CDMA/EVDO electronics and software to the iPhone would increase its cost with zero benefit to either AT&T/T-Mobile or Verizon/Sprint customers.

This is one of those awkward transition periods from old to new technology. I’m expecting great things in 2 years when my brand-new AT&T contract for my iPhone 4 expires. The speed difference between my ancient iPhone 3G and iPhone 4 is stunning, both in terms of app performance and network performance. And by 2012, if 4G is fully up and running and widely deployed, the difference between current and future speeds will be even bigger.

11 TheMacAdvocate { 07.02.10 at 1:41 pm }

“AT&T’s network is saturated. You posted a Youtube link a few months back where you showed how to put an antenna on top of your house to try to improve reception. Evidence abounds that AT&T is overwhelmed right now. And by ceding Verizon, Spring, and T-Mobile to Android, Apple has let Android grow into a huge threat. Android is now not just moving against the iPhone, but will move against the iPad and even iTunes. How different would things have been if Apple had released an iPhone more widely in 2008 or 2009.”

I haven’t seen wheels fly of a car that forcefully since my last Dukes of Hazzard marathon.

AT&T’s weakest markets are New York (where I work and have enjoyed significant improvement since AT&T’s recent network enhancements) and San Francisco (where Daniel lives). If that’s your “evidence abounding”, I think you need to look up both terms.

I would so love to see Google “move against” the iPad and (LOL) iTunes. Maybe they can combine it in some way with Google Wave.

If Apple released the iPhone in 2008 or 2009, we wouldn’t have the current crop of Android phones until 2011 or 2012. If you think the Android OS development was some kind of organic Google effort and not a direct derivative of the iPhone OS, I really don’t know what to tell you.

12 Maniac { 07.02.10 at 1:53 pm }

@TheMacAdvocate – “If you think the Android OS development was some kind of organic Google effort and not a direct derivative of the iPhone OS, I really don’t know what to tell you.”

I read somewhere that the original idea behind Android was to kill off WinMo. But after the iPhone did that for them, Google re-purposed Android as a knee-jerk reaction to iPhone OS, as it was called back then, and its threat to Google’s ad revenues. (I think I read that here, actually.)

13 shadash { 07.02.10 at 2:26 pm }

TheMacAdvocate –

Please read more carefully before posting. I said I wished the iPhone had been released “more widely” in 2008/2009 (ie on more networks in the US), not that it should have been released as a product then. If that had occurred, the “current crop of Android phones” would have been crushed by the iPhone instead of being allowed to grow.

As far as the “evidence abounding” regarding AT&T, I am not sure how you can read articles on the Internet and not hear the consistent complaints about AT&T. Just on this article, “stormj” posted that his wife’s Verizon Blackberry gets much better reception than his iPhone, which is “very spotty” and “rallred” stated that he would not be moving to the iPhone until it was on Verizon. And I’m in Phoenix and AT&T sucks here.

Read the reviews of the iPhone 4 by Pogue, Mossberg, etc. Every single one of them mentioned AT&T as a huge negative for the iPhone. Every single one. That is abounding evidence in my book. If you have some sources that paint a different picture, please share.

14 studiodave { 07.02.10 at 2:39 pm }

Once again I feel I must remind everyone, 5 year exclusivity doesn’t end till 2012. Here you can read for yourself, http://www.usatoday.com/tech/wireless/2007-05-21-at&t-iphone_N.htm

15 TWilson { 07.02.10 at 5:59 pm }

So should Apple aim at selling the iPhone to 3,800 potential subscribers worldwide, or should it focus its attention on making a single new generation of CDMA iPhone to target some of the 140 subscribers in the US with a phone that will be obsolete in two years?

Daniel, you must be rich indeed to drop a couple of millions (after 3,800 and 140) and not even miss them.

Actually, the issue is pretty much mute. I went to Japan and Korea 4-5 years ago with my Thai GSM phone, and had to rent handsets to keep in touch. I went to both countries again last year with my 3G Sony-Ericcson, and stayed connected either with 3G or HSDPA. Whether my phone was GSM or CDMA was irrelevant.

Keep up the good work Daniel, I’ve been lurking around here for a while – I’ve been a Mac user since 1984 – and its nice to find a site that so clearly outlines the ups and downs of Apple went through – fortunately they learned from their mistakes, to everyone’s benefit

16 HammerOfTruth { 07.02.10 at 7:31 pm }

“If Apple had a ready-to-sell CDMA/EVDO iPhone it had been maintaining in parallel development to the 3GPP iPhone it actually sells, it would be completely moronic for the company to sit on that for going on years, waiting to release it until CDMA/EVDO slipped from being the best US 3G mobile networks in terms of reach, and instead fell into history as a legacy network.”

Actually, it would make sense to keep updating the CDMA prototype that they have. You can bet they have one. Why? Well, for one thing, they approached Verizon first, so they had the parts to make one. All they needed to do is to keep refining them as the years went by and newer iPhones were made. Why else would AT&T want an exclusive contract? Do you think Apple wanted it? No. I’m sure that Steve Jobs was waiting for Verizon to come crawling back. Rather than having to eat their words, they found an ally who also despises Apple and Steve Jobs; Motorola.

Now that they have given away all of the old Droids with the purchase of one, they still have thousands upon thousands of customers waiting for the iPhone. They ask their customer service reps, when? When will Verizon get the iPhone?

The only thing that is keeping it from happening apart from the exclusive contract with AT&T is Verizon’s ego. They feel that they can be more profitable if they have better control over everything like they do with Android. They’re scared of giving Steve Jobs any leverage into their “walled garden”. They also fear that Google might backstab them soon and they already know what kind of devil Steve Jobs is, and you know the saying “Better the devil you know.” So, we will wait and see if on January Bloomberg was right, or someone wanted to manipulate some Verizon, Google and Apple stock.

17 studiodave { 07.02.10 at 9:24 pm }

I am actually looking forward to the day the iPhone is released on Verizon, it should be timed to a 4th of July celebration because when 2 million new iPhone users hit the Verizon network on the same day it will explode like fireworks in the sky, what a celebration that will be.
And the next day of course they will blame Apple for putting explosive charges on all of Verizons towers just to prove a point.

18 The Lone Deranger { 07.03.10 at 5:11 am }

This article seems to ignore that Apple was ready to ship CDMA to Verizon since day one. The CDMA radio specification hasn’t changed since then; implementing a CDMA radio would be a trivial exercise for Apple’s engineers. There are only two things holding up a Verizon iPhone: AT&T exclusivity expiration and Verizon’s willingness to accept Apple’s terms in negotiations.

Sales estimates for iPhones on the Verizon network are difficult to pin down. Guesstimates for the first year range from 3 million to 8 million. Even if it’s the lower end of the range, Apple will not leave the money from all those potential Verizon customers on the table.

Apple’s real problem: building enough iOS products to meet demand.

19 FreeRange { 07.03.10 at 7:19 am }

@shadash – thank you for posting your excellent and insightful comments. This is just about the only time I have not been in full agreement with Dan’s usually brilliant analysis. It can not be emphasized enough that the key reason for getting on Verizon’s network is to give Android a full body slam and weaken this competitive threat. It shouldn’t be long before we start reading more about the clearly inferior aspects of Android and its horrible fragmentation and inconsistent implementation by both manufacturers and carriers. (Dan has provided some great insight into this subject in the past.)

20 studiodave { 07.03.10 at 9:46 am }

Why anyone thinks Apple is threatened by anyone is laughable. Apple does not feel any threat from any of it’s competitors, Apple makes it’s great products thinking 2 to 3 years out in front of it’s competitors and barely looks back except to laugh. Android is not a threat to the iPhone, Android is only an operating system that phone manufactures botch up with their own ideas of limitations and controls. If Verizon ever gets the iPhone their network would crash so bad that would loose even more customers than they did when ATT first got the iPhone.

21 Alan { 07.03.10 at 10:01 am }

A few points. The LTE speeds shown in the graph are laughable. In Stockholm a commercial LTE network is already live and the speeds are NO BETTER than WiMAX! Wimax will also be upgraded again by the time LTE is deployed that will offer the same speeds. Sprint/Clearwire can also easily transition to LTE if the need arises, but wimax is likely to just coexist as a backhaul. Wimax will be available to 120 million Americans by the end of this year on both cellphones like the Evo and Samsung Galaxy in addition to Mifi type data devices. Compare that to LTE where Verizon will only release data devices sometime in 2011 and LTE capable phones much later than that. AT&T’s is not scheduled to begin LTE deployment until some time in 2012.

I will be the first to admit that Sprin’t coverage isn’t nearly as good as Verizon’s. But thanks to free roaming, what do I care? Whenever I can’t get a Sprint signal my phone just finds a Verizon tower which I can use. This really only happens when I am deep in the countryside or in rural areas far from major roads. So I can get the benefits of the Verizon network without paying Verizon’s prices.

Verizon’s CEO recently said that it will take at least 5 years or more to fully convert the CDMA/EVDO network to LTE. He said that during that transition all Verizon phones would continue to be CDMA capable. Just like the Sprint EVO phone is a CDMA/Wimax hybrid. If Apple does decide to make a Verizon iPhone within the next few years, it will need to include CDMA. Assuming it wants people to be able to make calls in most of the country.

I think Apple wants to sell an iPhone on all the major U.S. carriers and their reason for not doing so has nothing to do with technology. They got a sweetheart deal with AT&T and in exchange they agreed to exclusivity for 5 years. Once that deal expires or if Apple is able to get out of it early, you will see iPhones on all the carriers. They realize Android is gaining marketshare and need to counter this growth. They also realize they could sell potentially 15 million or more iPhones a year in the U.S. if it was available to all networks.

AT&T’s recent decrease in data limits, even on the iPad, their increase in ETF, their early upgrade allowances for iPhone 3Gs owners all point to the fact that Apple may be trying to get out of the 5 year deal. They are doing everything they can to lock people in before the iPhone is released on other networks.

I also wanted to point out that 140 million affluent U.S. subscribers is probably equivalent to 2 billion third world GSM customers in terms of the amount of potential iPhone sales. There is really no way to estimate how many Sprint, Verizon, or T-Mobile subscribers would switch to an iPhone if it suddenly became an option. It could be 5 million or 35 million. I certainly would be one. As an Apple fanatic I would love to have an iPhone on Sprint and would gladly upgrade my plan. If the iPhone plan would be the same as the EVO plan, I would be looking at $69 a month for unlimited data, unlimited text, unlimited calls to any cellphone, GPS, and 500 anytime minutes to landline phones M-F from 7AM to 7PM. Compare that to AT&T with 2GB data caps at nearly twice the monthly cost and far worse coverage where I live at least. So no, I will not switch to AT&T for any reason. My current HTC Touch Pro 2 works well and will last me at least another year or two. If by then no Iphone is available on Sprint, I will see what the latest and greatest Android phone is out and get that.

22 Mark Hernandez { 07.03.10 at 4:50 pm }

Of course, we’re all attempting to take an educated guess at Apple’s strategy. Apple knows all kinds of stuff we don’t, they’ve talked to everyone in the industry, and the smart people at Apple have optimized their strategy and have a working plan to keep the locomotive pushing at full steam several years into the future.

Apple loves to be number one, even though they don’t need to be to be VERY successful. But being the best is required.

Well today, Steve Cheney made a great post on TechCrunch y’all should read because it makes all these points. Apple is in a great position to know what the heck is REALLY going on in the industry, has forms of control over their destiny few other mobile companies have, along with other essential elements at play. Check it out…

http://techcrunch.com/2010/07/03/facetime-and-why-apples-massive-integration-advantage-is-just-beginning/

23 shadash { 07.03.10 at 8:55 pm }

Dan wrote:
[disingenuous: you keep using that word. I do not think it means what you think it means. Also, why are you stuffing words about Nokia "ignoring the US market" in my mouth? First off, they're not ignoring, they're failing while trying. - Dan]

Disingenuous was not the right word to use and I apologize.

Dan wrote:
[Signal bars have nothing to do with the faster air interface technology AT&T is using. There is no controversy surrounding the fact that Verizon's network has more coverage (it was started a couple years ahead) but that AT&T's network is faster. In many places it is significantly faster already, and has the capability to rapidly improve as AT&T upgrades its backhaul lines. - Dan ]

AT&T has the potential to do a lot of things. For 3 years we have been hearing that upgrades were coming. Who cares if you have the fastest Internet if you can’t get it where you are. And now Verizon is moving forward with LTE while AT&T is still trying to build out their 3G network, so again AT&T will be behind. Always a day late and a dollar short.

[That's not actually true tho. AT&T has been spending $10-20 billion every year building out and improving its network. In some cases, it has been behind the iPhone (most of it is 3.2Mbps, not the 7.6Mbps down that the iPhone 3GS could support). In other ways, AT&T has been ahead of the iPhone's capabilities (supporting HSUPA for some time before the iPhone 4 arrived with support for it). This isn't an easy problem to solve, and one can question AT&T's competence, but doing so is really armchair warrior talk unless you have some special insight into what, if any, engineering mistakes the company has made.

As far as AT&T vs Verizon on the next leg: AT&T is building out support for Release 7. The CEO last year said, "we have the infrastructure capability to go to 7.2 [Mbit/s], and we’ll have the capability to go 14.4 and 20 in the next couple of years.” AT&T’s HSPA network can be gradually scaled up using the same technology and equipment, as the backhaul (wired) networks behind it are improved.

In contrast, Verizon’s CDMA/EVDO network is at a dead end. LTE is a completely different signaling technology compared to both EVDO and UMTS. So Verizon has to start from zero, with a relatively slow fallback on its EVDO network.

In many ways, the tables have turned and Verizon is now in the position of AT&T a couple years ago, when its data network was EDGE without much room for improving it without rolling out an entirely new overlay. Early LTE is also going to be immature stuff that will be a vast learning experience. The rest of the world has already built out 14/20Mbps HSPA+ networks like AT&T is now working toward.

It’s fashionable to hate on AT&T, but they shouldn’t be bet against – Dan]

Dan wrote:
[What is your 5% based on? Why not just say "lets say 5 million people switch!!" and not pull out a percentage, as if that makes your guesswork more credible than regular guess work? Verizon doesn't sell that many smartphones now. Suggesting that Android sales will completely vanish into iPhone sales 100% is a little excessive even in the guesswork arena.]

My 5% was based on your “minority.” In reality mine, yours, and the “analysts’” is just that – guesswork. But even at 5%, which in my mind seems quite low, this “minority” of Verizon users would have a substantial impact on Apple’s total sales.

Dan wrote:
[No it's not. Verizon pushes one phone at a time. You can't compare the potential of Vz selling the iPhone to every campaign by every US carrier of every Android phone. That's ridiculous.]

What I missed here is the fact that you were referring to global sales, which obscures the fact that Android has made significant gains in a short amount of time in the United States, where Apple has chosen to cede 3 out of the 4 carriers. Even if this NPD survey below is inaccurate and based on faulty methodology, it still shows that Android is catching up rapidly to the iPhone in the US.
http://www.pcworld.com/article/195958/android_outsells_apple_iphone_at_last_says_npd.html

[Recall that NPD only monitors US retail sales, and only retail sales of stores that report to it. That means no WalMart, and I believe no Apple Store (!) and who knows about the carrier's retail stores. So NPD's figures about smartphones are pretty much guesswork extrapolated from the scant hard data it actually has. - Dan]

Dan wrote:
[The point is that Apple already offers an iPhone to the 300 million people in the US. There is a limited return involved with adding new carriers. Reaching new potential subscribers who can't yet buy it at all is far more likely to result in sales than adding a second source in the US. Additionally, you need to pull your head out of the sand. There's far more affluent people in a lot of countries compared to the US. It's not 1949. Ever traveled? Many cities in China make much of the US look like a 3rd world country. ]

Releasing the iPhone on what is widely acknowledged as the best network (for call and connection quality) in the US would have a huge impact on iPhone sales here. This is not going to be a situation of “limited return.” What happened in Europe when the iPhone went multicarrier? One example is below:

From November 2009 in France:
“The elimination of the iPhone’s exclusivity to Orange in France has resulted in “more than double” the sales of the device and dealt a blow to the BlackBerry, according to research notes issued recently.”
http://www.electronista.com/articles/09/11/20/iphone.non.exclusive.helps.apple.hurts.rim/

[Well, the results will depend a lot on who the original exclusive carrier was, how attractive they were, and how attractive additional new carriers are! You can't apply results of one country to another when there are vastly different technology/quality/price/support issues in play, and particularly not if Verizon isn't ready to play ball with Apple being in charge of downloads/media sales/etc. It's not that simple. Dan]

I have traveled, and I am aware that there are wealthy parts of many other countries. I tried to word that sentence carefully before writing it. My point is that you took aggregate “3.8 billion” subscribers as being more important than the US market. If we take China then, US per capita income is over $46,000, while China’s is around $16,000.
http://en.wikipedia.org/wiki/List_of_countries_by_GDP_%28nominal%29_per_capita

So while there are more people in China, and more potential customers, Americans as a group are more likely to have the financial ability to buy iPhones.

[Despite communism, wealth in China and the rest of Asia is most certainly not average. There are spectacularly rich people in addition to fantastic numbers of poor. Looking at average per capita incomes is meaningless. There are fantastically monstrous glass retail malls throughout Asia selling Maseratis and Rolexes, far more so that I've ever seen in the US. The "few" that have the wealth are a relative minority, but they certainly can afford to buy iPhones, and they exist by the millions - Dan]

Dan wrote:
[AT&T sells Android phones that are cheaper and/or different than the iPhone. Phone makers are typically using Android to sell low end phones. We hear about the few phones from HTC that are $700, but thats the same stuff HTC was failing to sell in quantity with Windows Mobile on it over the last few years. The vast majority of Vz's phones are cheap feature phones, with mostly low end app phones filling the iPhone void. Which is why AT&T handles more smartphones and mobile data than everyone else in the US together. Thinking something "must be the case" is not the same as being armed with facts. ]

The vast majority of all 4 carriers’ phones are cheap feature phones. That’s not the point. The point is that the new phones by HTC and Motorola (Droid, Incredible, Droid X) are real competitors to the iPhone. They are not as good as the iPhone, but as I’ve argued with you before, the phones are “good enough” and they are on a much better network. Since buying a phone is 50-50, phone and network, many customers can get a decent Droid Incredible on Verizon with a strong network to back it up. These sales are ones that Apple could have made but instead failed to because they offer no competition to HTC and Motorola on Verizon.

Dan wrote:
[AT&T has two main problems: it's upgrading from GSM/EDGE to 3G (years after Verizon), which resulted in weaker coverage as 3G needs more towers, and it needs to modernize its backhaul. If you're not aware of what the issues are, you can only make blanket statements about "how AT&T is overwhelmed" with the assumption that nothing can be done about it. That's not the case. New use of 850MHz spectrum and fast backhauls will make a phenomenal difference in AT&T's capacity.
Dumping those 12 million iPhone users on Verizon's EVDO (and fleeting bits of LTE) that "analysts" expect to be possible would simply wipe out Verizon's network too. ]

Under the heading “The Big Downside,” here is what Mossberg wrote in his review of the iPhone 4:
“The most important downside of the iPhone 4 is that, in the U.S., it’s shackled to AT&T, which not only still operates a network that has trouble connecting and maintaining calls in many cities, but now has abandoned unlimited, flat-rate data plans. Apple needs a second network.”

Even though I did not include them in my reply to your post, I was aware of the problems that you mention. I thought the widely reported problems with AT&T, as well as my personal experience was enough. Either way, what you wrote supported my contention that AT&T is “overwhelmed.” How is moving to 3G “years after Verizon” (and as I pointed out above, being now 1-2 years behind Verizon in moving to LTE) not being overwhelmed? How can needing to increase backhaul capacity and network towers not mean that AT&T is overwhelmed? When will the 850MHz spectrum finally help AT&T? This fall as Steve Jobs was promised, but can’t guarantee? Who knows?

And I’ve seen the speculation that Verizon’s network would have had similar problems to AT&T if they had gotten the iPhone in 2007 instead, or now as you say that if they got it in 2010 they would be overwhelmed. Even Jobs claimed that. But as you acknowledge, Verizon was already several years ahead of AT&T on 3G in 2007, so I would argue that any hypothetical overload on Verizon would not have been nearly as bad as it has been on AT&T.

[Having 3G coverage is not the same as being able to actually handle a significant number of people actually using the network for data. Prior to the iPhone, both AT&T and Verizon were effectively selling extraordinarily expensive data plans to people who really weren't using them at all. The iPhone forced AT&T to actually work for it, while Verizon has enjoyed a big breather (but less smartphone profits). Its BlackBerry and Android smartphones are not using the same bandwidth as the iPhone. - Dan]

Dan wrote:
Finally, after a lot of thought and some regret, I moved from being an iPhone owner for 3 years to the Droid Incredible a few weeks ago. I love it. The phone itself is not nearly as good as the iPhone and I miss a lot about the iPhone. But I can use the Droid everywhere without losing a signal or dropping a call. I am extremely happy not to be saddled with AT&T for 2 more years.
[I seriously considered this, but bought the iPhone 4 because I found Android to be maddening, and I'd rather miss a call than miss being happy - Dan]

Dan, I respect your analysis immensely, but I don’t think we’ll ever see eye to eye on this. I don’t like some things about the Android OS, but I found AT&T more maddening than Android’s quirks. I like being able to text, surf, and call without walking around like an idiot trying to get a signal.

24 JohnWatkins { 07.04.10 at 10:53 am }

DED,
Your view of wealth in China is a bit out of touch (but this a common misperception by Western visitors, who by the normal process of travel and tourism experience an unconsciously self-selected slice of Chinese society and consequently develop a skewed view of the society.

Yes, there are many wealthy people, but very few compared to the poor. This is always the case in totalitarian societies. If anything the per capita income statistic fools us into thinking the average citizen has far more money than is the case. Places Hong Kong (which really can’t be considered part the PRC even though it technically is) and other areas in asia outside of China are generally far better off in many ways. The good news is that people have the necesities now that they have so often lacked in recent history. And it is true that things have changed rapidly and the income distribution is flattening.

The last time I was in China I was struck by the fact that mainlanders look more and more like Hong Kongers and Taiwanese than they did 20 or even 10 years ago. China is like a Wallmart community. The low wages suck, but folks get very good purchase power on necessities for their yuan. The Chinese have a prosperous appearance more because of their personal frugality, savings rate, and fiscal discipline than because of their wages. The state is the (reletively) wealthy entity in China.

25 jdb { 07.04.10 at 1:03 pm }

Nice analysis. Another reason why the AT&T relationship with Apple’s iPhone is unlike the PPC relationship with OS X is partner enthusiasm. Apple likely had an Intel port ready to go because of the ongoing lukewarm support from Motorola and then IBM. Neither of those companies was in the least bit interested in helping out Apple’s plans. They wanted to do as little custom work as possible and tried to force Apple to use highly inappropriate technology such as the Cell processor for the future of Mac OS X. Alternatively, they would allow Apple to pay exorbitant prices for next generation processor technology.

AT&T on the other hand sees Apple as a beneficial partner. They work closely with Apple and go out of their way to accommodate Apple’s requirements. Apple is likely relatively happy with their partnership with AT&T (outside of the obvious regional network issues.)

26 gslusher { 07.05.10 at 3:35 am }

shadash wrote: “If we take China then, US per capita income is over $46,000, while China’s is around $16,000.”

No. You referred to per capita GDP (Gross Domestic Product). That divides the value of all goods and services produced in a country by the population (in simplistic terms). It may or may not have anything to do with PERSONAL income, which is the real measure you want. (One can also find simiar data for “Gross National Income,” but it suffers from the same problem. GNI is computed a bit differently from GDP.)

Also, per capita anything is a poor measure. It’s an arithmetic average, which is highly influenced by a few high numbers. There’s an old joke that shows the difference. There’s a bar with 20 customers with an average (arithmetic) income of $25,000. Bill Gates walks in. Say his income is $200,000,000/year. The total income in the bar is now $200,500,000. Divide that by 21 and you get $9,547,619 average income. See the problem? A much better measure is the “median,” the value that splits the sample in half–half are higher, half are lower. That’s why incomes, house prices, etc, are always given in terms of medians. In the bar example, when Gates entered, the median income would hardly move. He wouldn’t “count” any more than any other person who was above the median.

This has an analogue in the real world. In the US, income and wealth are very unevenly distributed–more so than any other industrialized nation. In 2003, the median HOUSEHOLD income in the US (not “per capita) was $43K–less than the “per capita income” you referred to. In 2007, half the income was received by the top 20% of households. 28% was received by the top 8%. This skews the “average” or “per capita” income (even if correctly considering household income) toward the upper end.

Another point: Once again, shadash essentially says that Apple’s management is stupid, incompetent, or criminal. If this is the case, he/she should start a movement among Apple shareholders to replace the board and executives.

27 SkyTree { 07.05.10 at 9:05 am }

Here in Japan we are subject to what Apple can and cannot do in the mobile phone industry, so the iPhone only showed up with 3G in 2008.

A friend of mine decided he wanted an iPhone 4 and walked into his local Softbank store. He was told he could place an order , but they couldn’t say when it would be delivered. Why not? There’s 500 people ahead of you. In Japan or just Tokyo? Just in this store.

It was a small town store, I don’t know how many Softbank has now, but when J-Phone switched to Vodafone they had 2,000. So there’s possibly a million or more iPhone G4′s on post “pre-order” waiting lists.

Do any of them care about antenna problems? No, unless you live in the mountains there aren’t problems with reception, so it’s either 5 bars or zero.

28 shadash { 07.05.10 at 10:58 am }

gslusher,

Thanks for the info on GDP/GNI/median income. It was interesting.

On Apple management being ” stupid, incompetent, or criminal,” that is not how I see things, and I am sorry if that is how it comes across. I do think they should be criticized if they deserve it. To me, going exclusive with AT&T for 5 years, or whatever it ends up being, was a mistake. Other “Mac loyalists” have criticized Apple for other things they perceive as mistakes. It is okay to like a company and buy its products and still think they make mistakes. I do object to the crowd that seems to think Jobs and Co. can do no wrong. If you’ve noticed, the only thing I get upset about enough to post on is AT&T though. If you have had no problems with AT&T then you may not share my perspective on that, but as a multi-billion dollar company, I am sure that Apple has done something that you disagree with.

29 dchu220 { 07.06.10 at 2:10 am }

All you have to do is listen to Jobs comments about Flash during his AllThingsD interview.

“The way we have succeeded is by choosing what horses to ride really carefully, technically.”

CDMA is a horse about to be sent to the glue factory.

Not to say that Apple won’t release a cdma phone, but I doubt it is high on their list of priorities. No matter how much Jobs hates Schmidt, I doubt he is going to let Google dictate his business decisions. Apple travels on their own path according to their priorities.

30 ShabbaRanks { 07.06.10 at 6:22 am }

I first became aware of the existence of CDMA when I bought a Samsung sph-n270 Matrix phone from the US. I blithely assumed it would be a case of putting my O2 SIM in and away we go. My jaw dropped in nerdy wonderment when the phone came with no SIM slot at all.
Since then I’ve found the US mobile network fascinating. I love any article like this as it gives another tantalising insight into the US.

Oh, and they really gouge you guys on tariffs too don’t they. I pay £10 a month (if I want to, no contract) for 300 free texts and free “unlimited” data. Handsets are more though.

31 Alan { 07.06.10 at 8:04 am }

@ShabbaRanks. Actually, the U.S. probably has some of the cheapest plans on the planet if you shop around. For no contract options like you mentioned, you can pay as cheap as $25 a month for unlimited calling, unlimited text and 200MB data. There are numerous options depending on how you use your phone. If you are a very light user, you could get away with paying just a few dollars a month. How many minutes of actual phone calls does your £10 a month include? Not many I bet.

It is actually very difficult to compare plans or as you guys call them tarriffs. Even comparing plans inside the U.S. is difficult. For example, AT&T have rollover minutes. You first must understand the concept of “Anytime minutes” In the U.S., all calls made to people on the same network are always unlimited and free, these are usually called M2M. Also calls made in the evening are also free. AT&T and Verizon for example allow all calls after 9:00PM until 7:00AM as well as all day Saturday and Sunday. So basically you only have to use minutes when calling another network M-F from 7AM to 9PM. Now there are many variations, for example I am on Sprint and their evening free minutes start at 7PM not 9. I pay $30 a month and get unlimited calling, unlimited text messaging, and unlimited data. However, I have a very special plan that is not available anymore. The normal price for a similar plan would now be $69 a month but up to 25% cheaper for most people with a corporate discount. Almost everyone can get some discount, even credit union members get 10% off.

In summary I think our plans are much cheaper than the ones in the U.K. for talking at least. It is not uncommon for people here to go well over 2,000 minutes a month on the phone. How much would an unlimited everything plan in the U.K. cost per month for example?

32 Alan { 07.06.10 at 8:32 am }

I just went to the O2 website and it appears that their unlimited plan is £60.00 a month which is reasonable, but then I noticed that does not include MMS messages which are charged at 20p per message. I also noticed it only includes 1GB of data. I send and receive probably 30 or more picture messages a month and use about 3 to 5 GB of data a month (thanks to free tethering with my MBP) so I would be paying significantly more than £60.00 a month to maintain my current usage patterns. But, I must admit that is a better plan compared to the unlimited plan for the iPhone on AT&T which is about $135 for unlimited everything with a 2GB data limit. (add an extra $7 a month for voice turn by turn GPS) I am sure once Apple releases the iPhone to other carriers you would see that price drop significantly.

33 JohnWatkins { 07.06.10 at 3:19 pm }

@Alan,
“Actually, the U.S. probably has some of the cheapest plans on the planet if you shop around. For no contract options like you mentioned, you can pay as cheap as $25 a month for unlimited calling, unlimited text and 200MB data.”
Can you point me to these deals?
I’m in the market for a new phone and service and have not discovered these deals.
Thanks.

34 roz { 07.06.10 at 3:30 pm }

Daniel:

A) What is your best estimate of how many iPhone Apple would sell on Verizon?
B) How much revenue do you estimate they would get for each device?
C) What do you think the maximum development cost of a CDMA iPhone is?

35 Alan { 07.06.10 at 4:35 pm }

@John Watkins. Try this site to compare. http://www.prepaidreviews.com/compare/

It really depends on how you will use your phone. If you use voice, text, and data on a daily basis then you will need to spend a bit more. It also depends on the coverage in your city. Where I live Cricket is very cheap, they have a $25 plan and good coverage. Heard good things about Boost Mobile’s CDMA service, Virgin Mobile, and Page Plus as well. Just do some research and you can find a carrier that suits your phone habits for a good price.

36 Paladin { 07.06.10 at 11:45 pm }

1. If it wasn’t for CDMA tech being infused into 3GSM, we would not have any sort of fast coverage for the iPhone at all. 3GSM is a CDMA standard, in fact I would submit that almost iPhones are using CDMA technology, just with a different application core. However, it would be, much like you tactfully admitted, not much work to take out the Infineon baseband and install a Qualcomm baseband. We are likely also talking about minor tweaks in iOS to add CDMA 2000 Ev-DO compliance.

We have to look at multiple carriers as the international norm, but on the other end it’s completely and uttlerly silly to expect Verizon to just rip out 10 MHz of spectrum to overlay Wideband CDMA at this point. Verizon shareholders would lynch their CEO, Mr. Seidenberg, and it would be the right thing for them to do.

Considering CDMA 2000 is also expanding widely internationally, I think there’s more international value to it as well. Brazil, China (China Telecom), and Africa have lots of CDMA 2000 connections. Finally, CDMA 2000 is a much easier upgrade for providers who are already running CDMA.

I’m just not convinced a Verizon iPhone will happen for one big fat major reason in January… supply and size.

1. Supply will still be constrained even if the 2nd Pegatron operation gets going. Now if they have supply issues they have to build GSM/UMTS capable phones first for their existing providers globally. 2. Size. For CDMA, Apple will have to go to Qualcomm for a custom designed baseband, especially if it’s the world mode CDMA/UMTS phones you speak of. Fortunately, the newest generation of MSM modems do that and they even add SV-DO (simultaneous voice and data). They just won’t be widely available until 2011. I just think after January 2011… it will be real close.

37 ShabbaRanks { 07.08.10 at 9:37 am }

@ Alan.

It depends on how you use it but it’s 25p per min for the first three mins and then 5p per min for the rest of the day. So.. you get anywhere from 40mins to 188mins inclusive for £10 a month. No contract, 10% of your £10 back every month in calltime, at least one weekend a month free calltime too.
If you wanted the big sausage deal it’s about £45 a month for everything unlimited but you’d have to be a very mobile intensive user for it to be worth it and it’s contract (something I will never do again).

38 ShabbaRanks { 07.08.10 at 9:49 am }

Oh, the other thing is all the little add-ons they get you with. I can’t believe you get charged for GPS. The Sprint Evo4G plans charge people for 4G use even if you’re not in a 4G area.

39 ShabbaRanks { 07.08.10 at 10:52 am }

Last post, I promise.

You could compare total cost over 2yrs which, for me, is just under $1300 at the current exchange rate, including the handset and normal use.
If you’re a heavy talker you might find a contract better, in which case you’ll want to look at either Vodaphone or Orange which are usually better contracts than O2. If you were a glutton for punishment, Hutchinson ’3′ will be the cheapest contract in the UK but they’re the reason I’ll never have contract again. They still owe me £100 from about 4yrs ago.

40 Alan { 07.08.10 at 12:18 pm }

@ShabbaRanks. AT&T charges for turn by turn GPS, my carrier Sprint does not. It is included for free. Yeah, the $10 EVO surcharge seems silly to me too, but don’t forget that if you do live in a 4G city, and that will include 120 million people by the end of the year that 4G data is truly unlimited. Even the 3G on my plan is also unlimited. I talk an awful lot on the phone, sometimes as much as 5,000 minutes a month. (Use my cellphone as business and personal line) So, for $30 a month plus taxes I get unlimited talk, web, turn by turn GPS, Sprint TV which is actually very nice, picture and text messages. There is no way I will give up this plan anytime soon. Not for an EVO or an iPhone. The money I save in one year alone lets me buy an iPad and take a one week vacation to Florida for example and still have money left over.

41 Alan { 07.08.10 at 12:24 pm }

Also wanted to pint out that even with the $10 EVO surcharge, the Sprint plan is still much cheaper than AT&T. If most of your calls are to cellphones and not landlines and you can get a corporate or other discount (which almost everyone can and varies from 10% to 25% off) You would be looking at a monthly bill from around $62 to $72 for unlimited everything with a 450 minute allotment for landline calls weekday from 7AM to 7PM. That is still a lot cheaper than AT&T’s plan and offers a lot more.

42 ShabbaRanks { 07.08.10 at 1:44 pm }

I suppose one of the main advantages to living in the UK (and Europe as a whole) is that we have, at least, 5 main carriers for the iPhone meaning so many tariffs it’s hard to choose. Some are better for non-contract (like Tesco and O2) and some for contract (like Vodaphone, Orange and 3). I can sympathise with American iPhone users who have to suffer the idiosyncrasies of one carrier just to have the iPhone.

I still can’t believe they charge for GPS. Bet you’ll be saying they charge you to use WiFi next.

43 ShabbaRanks { 07.08.10 at 2:02 pm }

Just to illustrate my point I’ve looked on the AT&T website and seen what the cheapest plan was I could get with a 32GB iPhone 4.
My plan over 2 years: $1300 no contract.
AT&T cheapest plan on website which still gives some “free mins and texts” over 2 years: $1800 contract
UK Tesco iPhone contract with unlimited everything over 2 years: $1780

I don’t doubt that, if you want any phone, the US can give you a cheap deal but with regards to the iPhone you guys get gouged.

44 Alan { 07.08.10 at 2:42 pm }

I agree 100%, if you want the iPhone you get gouged. But I pay only $360 a year for practically unlimited everything with no data cap. So if you are willing to go without an iPhone like me and just get an iPad for example which I can tether for free from my phone unlike the iPhone, then you can get some great deals here.

45 ShabbaRanks { 07.08.10 at 3:59 pm }

Fair enough.

46 roz { 07.08.10 at 7:49 pm }

ATT sucks. That is the problem. Maybe they are fixing the network but standing in San Francisco I can’t make calls often and can’t connect to data. Maybe Verizon would be just as bad – so be it. Let them compete on service. As it stands now the iPhone is limited to ATT and many people don’t want to join the misery party that is ATT service in a lot of areas. And after a certain point it does not matter what the reality is, it does not matter what the CEOs say, if the perception is that service is bad, people need another option.

As long as there are people who don’t want to use ATT or who can’t use ATT there is going to be unmet demand for the iPhones on other carriers. The only option for these people is Android. Apple does not *need* to support these carriers to grow – but it is silly to pretend that bringing the iPhone to the other 72% of the market is not a growth opportunity. Last time I checked US sales were 50% of iPhone sales. Is the global market important? Yes. Is serving the entire US market, not just 28%, also important? Very much so.

Everyone I know on Verizon wants to know when the iPhone will be available so they can get it. I don’t get what Daniel is talking about when he says it’s a “minority” of their customers who would get the iPhone. Pure sophistry. You mean like 45% of 80 Million? That is why I was asking Daniel what his estimates are. He says developing a CDMA iPhone is not worth it. Really? By what measure? How do you arrive at that statement? You don’t like 5% adoption rate, uh, ok. What is your number? What about 1%? 800,000 iPhone for Verizon. Ok so 800k times $400 is $320,000. Not bad. I really find it hard to believe that porting the iPhone to CDMA would cost Apple any more than $50M, probably much much less than that. So you have an upside of at least+$250M with 1% adoption. If they sell to 4% it’s an additional $1B in rev. How is that not worth it? Just because Apple does a version for the other it does not keep them from doing anything else. If they really have a constraint on product development that they have to leave $1B+ opportunities on the table they just need to fix their systems – the answer is not leaving 72% of the market unaddressed.

And strategically the current policy is bad for the longterm because all of that money today is going instead to Blackberry, HTC and Motorola. Why do you think interest in smart-phones has grown so much in the last few years so that the segment is growing so well. It is because the iPhone make the segment compelling. The only thing missing is product to meet this demand on the other 3 US carriers.

Apple would make more money offering iPhone to every carrier. Apple makes a ton of money after the sale with add-on packages, warrantees, halo-effects for it’s other product line. The best thing to do is to consolidate its lead in the market. The worst thing to do is to inspire demand across the market and then not meet that demand or let other players soak up the customers while Apple sits behind and arbitrary wall.

Fundamentally, growth and profitability aside, Apple should support all carriers in order to be competitive with Android. Nothing would cut off the Android air supply better than Apple supporting Sprint. TMobile and Verizon. Walk into any one of those carriers stores and ask a sales rep if they would be happier if they had the iPhone to offer.

There is no technical reason for Apple not to support all carriers. We don’t know whether Apple has a secret CDMA version of the iPhone but it would make sense that they would. Why not? Its very cheap for them to develop because they can, as Daniel says, leverage so nearly all of the work done on the global iPhone version.

The biggest flaw in Daniels article is the notion that Apple must choose between doing the iPhone CDMA and doing something else. I think this point is overstated. Actually, to the contrary, supporting these carriers is probably the most leveraged and strategic use of Apple resources imaginable because they are leveraging the work they have already done on the global iPhone and they would do the most damage to they’re strongest competitor competing for the rest of the US market.

The real reason Apple doesn’t do it is to protect the margins they get with ATT and because Apple fancies the idea of the making the least number of products for the market. In terms of margins – these have to be sacrificed to compete with Android, the sooner the better. In terms of the minimalist aesthetic – time to get over it. Better to compete across the board.

It would be very easy for Apple to roll a version of the iPhone for each US carrier and they should so it as soon as possible.

47 adobephile { 07.08.10 at 8:22 pm }

@roz

If there’s any sophistry here, it’s in your lengthy post. As if you know better than Apple and AT&T how they should run their affairs! What utter conceit!

Let’s dress up this tired whining of yours as fact and ignore the actual facts of both companies’ dramatically rising sales statistics. If AT&T really “sucks” as you so eloquently profess, why then is there such strong demand for Apple’s and AT&T’s products?

48 shadash { 07.08.10 at 8:55 pm }

adobephile – Your posts always crack me up. Thanks for the laugh.

roz – Great argument. I totally agree.

49 roz { 07.08.10 at 9:50 pm }

@adobephile
It’s no secret that customer satisfaction with ATT’s network has declined a great deal. I suppose they do well in spite of this fact because they have the iPhone and for any individual there is a cost to switching. That does not mean that other people are going to be eager to join the mess. We can debate the situation there but to me the burden is on you why an exclusive is good for anyone at this point…

And I don’t see any conceit if expressing an opinion about the product decisions of a public company. I am saying that I don’t like what they are doing and suggesting an alternative. Your position is what? That they are infallible and no one should speak against their decisions?

50 ShabbaRanks { 07.09.10 at 3:10 am }

I agree with Dan and Roz. Largely because I’m fortunate enough to not be in the single carrier market. Dan’s right that, looked at globally, CDMA may not make for compelling numbers compared with development, manufacturing and distribution costs required. BUT Roz is also right that the Apple/AT&T lock in has been taken advantage of by Google and HTC. The inexorable rise of Android isn’t something really seen outside the US, probably due to the fact that you can get an IPhone and carrier to suit you.
Apple aren’t stupid and despite probably already working on iPhone 6 likely have a CDMA rollout plan all ready for the end of the AT&T exclusivity deal. It’ll just be up to Verizon and Sprint to resist the urge to nerf the phone as seems to be customary for Verizon.
This is what’s so fascinating about the US phone market. It’s hard to believe this kind of situation would arise. It’s Apple’s fault for making phones desirable. The bastards.

51 JohnWatkins { 07.09.10 at 8:51 am }

Presumably Verizon would not agree to NOT “nerf” the iPhone. And that is largely the reason for the initial exclusive deal. If they continue to assert to Apple their customary desire for handset control, they won’t get iPhones when the exclusivity deal ends.

You guys just don’t seem to get that Apple is not a “handset manufacturer” that sees “cell communications service providers” as their customers (a la Motorola et al.) Apple sees these guys as unpleasant “orifices” through which they must deal with their actual customers (the users.) Since this is not such a big problem in most other countries, they didn’t need to start with exclusive deals there (plus by the time the international roll occurred, the iPhone had established its successful reputation.)

52 Alan { 07.09.10 at 9:34 am }

Verizon no longer cripple their phones like they used to. They didn’t even used to allow wifi for example. All their new android models are pretty much open. So that might have been an issue a few years back but not anymore. And I bet Sprint and T-Mobile would bend over backwards to any demand Apple made. Roz’s comments a few posts above were right on the money. Apple sells around 50% of their iPhone’s in the U.S. and it makes little sense to not sell to 72% of that market. That contract with AT&T must have been iron clad because I bet apple are not happy about how fast Android is gaining momentum in the market. I just hope that the CDMA iPhone will be available sooner rather than later. But rest assured it will come because even with LTE, CDMA will still be needed for many more years for any Verizon or Sprint phone.

53 PhilipWing { 07.13.10 at 3:48 pm }

I wonder if the judge for the two vs. five or ever chaining to AT&T case understands the tech issue of GSM vs CDMA? Even when you’re done with the two year contact, *it won’t work* on Verizon or Sprint. I hope somebody will make that clear to him or her.

54 Johan { 07.21.10 at 8:58 pm }

Thanks Daniel for a good write. Apple’s iPhone business model is heavily dependent on high device subsidies making it available to wider masses of people. Apple gets high subsidies from operators by giving the operators exclusivity to iPhone in a market. I have considered “CDMA iPhone” a red-herring – rumors that Apple purposefully spreads out through back channels when they are facing difficulties in negotiations with AT&T. Then AT&T panics and pays higher subsidies and the “happy” marriage continues as nothing has happened ;-)

55 roz { 08.16.10 at 10:42 pm }

“Among the 1,000 consumers surveyed, 51 percent of current Verizon customers said they were “Somewhat/Very Likely” to purchase an iPhone with Verizon. Stating the same were 22 percent of current Sprint customers, 20 percent of T-Mobile customers and 23 percent of current AT&T customers. ” http://www.eweek.com/c/a/Mobile-and-Wireless/Verizon-iPhone-Desire-Is-Already-Hurting-ATandT-810097/

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